Maxis’  9M14  results  came  in  line,  at  71%/76%  of  our/consensus estimates. Maintain NEUTRAL, with a higher DCF-based TP of MYR6.35 (8%  downside)  after  revising  our  key  assumptions.  Management continues  to  guide  for  lower  services  revenue  for  FY14,  given  the decline  in  voice  and  messaging  revenue.  That  said,  we  believe  4Q revenue could see a pickup from recent smartphone launches.

Within expectations. Maxis’ 9M14 core net profit of MYR1.48bn  (-9.0% YoY) was within our and consensus expectations, making up  71% and 76% of the  full-year estimates respectively.  Maxis declared a net DPS of 8.0  sen  for this quarter. We maintain our FY14 DPS estimate of 40 sen, based on management’s guidance.

Slowly recovering. 9M14  revenue fell by  8.7% as revenue  continued to be hit by a further decline in voice and short message service segments. Although  overall  services  revenue  growth  was  flattish  sequentially,  we believe that this could be a sign of  recovery. Mobile internet’s strong 9M YoY  growth  of  14.5%  has  helped  to  offset  the  decline  from  the  other segments.  We  expect  revenue  to  pick  up  in  4Q,  underpinned  by  the recent launches  of  the iPhone  6, iPhone  6+  and Samsung Galaxy  Note 4.  Nonetheless, EBITDA margin could see some erosion, given the thin margins from devices sales as well as an expected pickup in  sales  and marketing expenses.

Briefing highlights. Management continues to guide for lower  services revenue  for FY14.  Nonetheless, EBITDA is expected to remain stable at the 49-50% level. The MaxisONE Plan will remain its key focus over the near  term.  The  plan  has  been  gaining  good  traction  since  its  launch, although  management  expects  significant  earnings  impact  only  from FY15 onwards. Given that data will continue to be the main growth driver going forward, management is actively looking at ways to  optimise data monetisation. 

Maintain  NEUTRAL.  We  reiterate  our  view  that  much  of  the  negative news has been priced in at this juncture. However, our DCF-based TP isrevised  to MYR6.35  (from MYR6.00)  based on  a  lower WACC of 7.7% (from 8.1%),  in line with RHB’s revised  valuation assumptions.  Dividend yield remains decent at around 5%. 

Briefing highlights

No  major  changes  to  guidance  going  into  4Q.  As  expected,  management continues  to  guide  for  lower  full-year  services  revenue,  and  is  expecting  FY14 revenue  to  be  4%  lower  vs  FY13  figures.  Nonetheless,  management  expects EBITDA margins to remain stable for the year at around the 49-50% level. This is still in line with our full-year FY14 EBITDA target of 49%.  Management will only provide for its FY15 guidance in the 4QFY14 briefing.  Management reiterated that it is still comfortable with its net debt/EBITDA level of 1.7x at the moment.MaxisONE  Plan  still the main focus in  the near term.  Management has indicated that the MaxisONE Plan will remain its  key focus over the coming quarters. The plan has  been  gaining  traction  in  terms  of  subscriber  numbers,  both  from  its  existingsubscriber  base  as  well  as  externally.  Management  plans  to  further  expand  the MaxisONE  Plan  over  the  upcoming  quarters,  and  has  indicated  that  most  of  the buyers of the recently-launched iPhones are on the MaxisOne Plan.  Given that  the plan  was  only  launched  recently,  management  expects  significant  earnings contribution  only  from  FY15  onwards.  This  is  in  line  with  our  view,  as  we  expect earnings to only see a pickup from FY15 onwards.

Data monetisation  key  growth driver going  forward.  Management believes  that mobile internet data will continue to be the main growth driver going forward.  This is in line with the view of its peers.  Presently, data share of mobile revenue stands at 30%, and this is expected to grow steadily over the longer  term.  Maxis believes  that upon  completion  of  its  network  modernisation  exercise,  due  to  be  completed  next year,  it  will be able to provide subscribers with more consistent data coverage, thus enhancing consumers’ experience. Furthermore, Maxis will be using data as the main driver  for  #Hotlink’s  expansion.  Management  will  also  continue  to  look  for  other avenues  to  further  monetise  data.  Going  forward,  management  will  be  introducingnew bundled plans to mitigate losses from its voice and SMS segments.

Key risks
Key  risks  include:  i)  a  lower-than-expected  pickup  in  data  revenue,  and  ii) competitors chipping away its market share.

Forecasts
Forecasts. We make no changes to our FY14-15 figures  as we expect 4Q numbers to come in better. We also introduce our FY16 figures.

Valuation and recommendation
Maintain NEUTRAL.  We reiterate our view that much of the negative news has beenpriced in  at this juncture. However, our DCF-based TP  is  revised to MYR6.35  (from MYR6.00) based on  a  lower WACC of 7.7% (from 8.1%), in line with RHB’s revised valuation assumptions. Dividend yield remains decent at around 5%.

Source: RHB